Tuesday, August 7, 2012
A progressively larger share of the world's capital whether from property firms or cash-rich investment funds has found its way to the global financial hub in recent times, hungry for stable returns in an otherwise anaemic, debt-strapped region.
On Wednesday, Amcorp Properties Bhd said it was entering into a joint venture (JV) to acquire a freehold office building in London's trendy Mayfair district, followed by IJM Land Bhd's Friday revelation of a mixed development on Royal Mint Street.
Analysts have favourably regarded IJM Land's latest venture, saying it diversifies the company's income stream from the current concentration in Malaysia.
To recap, IJM Land took a 51% stake in a JV with Lite Bell Consolidated Sdn Bhd for the project, which will buy a 999-year lease on a 2.7-acre site that has already obtained planning permission to be developed into 650,000 sq ft of gross floor area (GFA).
The site will be leased from Network Rail Infrastructure Ltd for some £20mil (RM97mil).
With a strategic location in the heart of London, the project will boast of “excellent views” of popular landmarks such as the Tower of London, Tower Bridge, Royal Mint Court, St Katharine's Docks and River Thames when completed, as well as superior connection to public transport, being above the National Rail and DLR railway lines.
It is just 1km off the city's financial centre known as the “Square Mile”.
The initial development plans involve a block of five-star hotel cum residences and three blocks of residential apartments with a combined gross development value (GDV) of £280mil (RM1.4bil).
In a filing with the stock exchange, IJM Land said the favourable exchange rate and lack of funding for property developers in London given the eurozone crisis provided a “window of opportunity” for its UK undertaking.
Affin Investment Bank said in a client note that the effective acquisition price of £30.80 per GFA was fair compared with the £74.10 paid by Sime Darby Property Bhd and SP Setia Bhd for the Battersea power station.
“The land cost to GDV ratio of 7.1% is also slightly more attractive than the 7.5% of SP Setia-Sime's acquisition.
“Importantly, we are generally positive on the medium-term outlook for London property given the strong interest from global buyers, including Malaysian high-networth individuals,” it explained.
Kenanga Research, meanwhile, opined that the guided GDV of RM1.4bil was conservative.
“Management is indicating average selling prices of £1,000 to £1,100 psf, which is saleable considering the area's pricing range of £1,000 to £1,500 psf.
“However, if we assume a very conservative 50% utilisation rate on the 650,000 sf of GFA with average selling prices of £1,000 psf, we arrive at a GDV of £325mil (RM1.6bil).
“We also understand that the group will maintain prices below £2mil per unit to avoid the higher stamp duty of 7% on any sales (usually 5% or less),” it noted.
The research unit added that there were no issues as far as funding was concerned, with IJM Land's net gearing expected to inch up to 0.1 times from a net cash position in its fourth quarter ended March 31, assuming a 70:30 debt-equity financing of the land and working capital of £30mil.
“The project will only be launched in the fourth quarter of the financial year 2014 (FY2014), implying significant earnings contributions from FY2015 onwards.
“In the short to medium term, the sales drivers will be from The Light Waterfront and its stable of mass housing projects (Shah Alam 2, S2@Seremban, Johor projects) plus its long-awaited township, Rimbayu, which is slated to have a GDV of RM11bil," Kenanga Research said, noting the launch preview for Rimbayu could take place this month.
It also pointed out that IJM Land is aiming to achieve RM1.5bil in sales in FY2013.
A weak pound, coupled with low interest rates, has helped propel institutional investors from the Far East to become the biggest buyers of central London office properties, real estate consultancy CBRE reportedly said last month.
Malaysia is now ranked second only to the US in a list of the top five investors in London by total investment volume between 2010 and the second quarter this year, with £2.35bil and £3.53bil ploughed in by both countries respectively.
Rounding off the list were Germany with £1.29bil, Saudi Arabia £969mil and Qatar £750mil.
By The Star